by Andrew Houghton and Nick Atkeson 05/09/08
When Bear Sterns (BSC) was trading between the mid-$50s and the mid-$70s, options buyers were buying the BSC 30 strike puts in size. At the time, options experts identified the trade, discussed it publically but typically did not act on it because it seemed impossible that a strike approximately $30 out of the money was likely to pay off.
Then one Monday morning, the world came to work and discovered Bear Sterns trading was at $2 per share. The options buyers made a pile of money.
Today with Prudential Financial (PRU) trading in the low $70s, options buyers are buying PRU Jan 40 Puts (OYKMV) roughly 12,000 times. This far into the credit crisis, it seems incredible that Prudential Financial may have further news to essentially cut the stock in half, but it is expected to report its next earnings report on Aug. 1.
For more fresh options trading ideas from Andrew and Nick, click here.
